Iron ore price drops again to flirt with multi-year lows amid gloomy forecasts

The value of Western Australia’s most important mineral commodity is tumbling towards lows not seen in 2.5 years, putting three of the big four banks on track for vindication.

A tonne of the benchmark iron ore product is currently being traded for $US92.40 after shedding $US1.10/t overnight. It was above $US100/t during the middle of last month.

The steel-making commodity’s value is now at its lowest point since September and could be heading towards a sustained sub-$US90/t price for the first time since November 2022.

Iron ore briefly dipped below $US90/t in September — hitting $US89.50/t — but quickly rebounded.

Shares in local mining giants BHP, Rio Tinto, Fortescue and Mineral Resources were all in the red on Wednesday.

By 12.30pm, Rio was down 0.9 per cent, BHP lost 1.3 per cent, FMG dropped 4 per cent and MinRes sunk 4.8 per cent.

FMG’s entire revenue base is linked to iron ore and MinRes’ precarious balance sheet position is largely contingent on the success of its Onslow iron ore project.

Iron ore is the biggest money-spinner for Rio and BHP, but the duo have mining operations spread across other commodities.

Temporary factors and long-term structural shifts in the global steel market are behind the iron ore price decline.

Construction in China, where virtually all of WA’s iron ore ends up, is currently at a seasonal ebb. The Asian powerhouse has also ordered its steelmakers to curb their output this year to supposedly meet national carbon emission reduction goals.

More broadly, China’s multi-decade building boom is winding down. Rio Tinto’s iron ore chief executive Simon Trott last year said the peak of steel demand from the country has been reached.

India is touted as a new growth market but its iron ore consumption is still nowhere near China’s.

While demand is waning, global supply has been steadily rising, and tens of millions of additional tonnes are soon set to come online from Brazil and West Africa.

Global investment bank Citi this week downgraded its iron ore forecasts, predicting the price to stay around $US90/t over the next 12 months.

Australian banks have been even more bearish.

Commonwealth Bank reckons the price will drop to $US80/t this year, Westpac thinks it will start 2026 at $US86/t, and NAB is pencilling in a 2025 average of $US87/t.

ANZ has been an outlier and last month raised its short-term iron ore prediction from $US90/t to $US100/t.

WA’s Treasury in December adopted a $US95/t expectation for the 2025 financial year, marking a $US18/t increase from the price estimate on Budget day in May.

Every $US1/t change in iron ore’s value can add or wipe out almost $100m from the State’s coffers.

For the 2024 financial year, WA received just under $10 billion from iron ore royalties. Nearly 90 per cent of WA’s entire royalty income stream comes from iron ore.